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Tuesday, February 7, 2012

Merit Aid for Parents

Catherine has kindly offered me the keys to make the occasional post here at KTM. My kids are too young to have issues with math education yet, so I will probably stick to posts about college admissions, which has been a big topic lately. I thought I'd start with a primer on merit aid.

Merit aid is probably the least well-understood piece of financial aid.The entire way that colleges figure out what you will pay is purposely vague anyway.It is based on a sense that a college that costs a lot is perceived to have a high value, while lowering tuition makes a school seem like it is lower in quality.I’m not kidding here – a few years ago, a consultant recommended that to raise our enrollment, we raise our price by 10K per year and raise average financial aid per student by 9.5K.They figured that would actually attract more students by making us look high quality and generous with aid.

The cost of college is adjustable – an institution won’t tell you the real cost until after you have been accepted and they see your FAFSA (which is basically the information on your tax return – imagine if a car dealer asked for that information before you started negotiating!)Most schools have a discount rate, which is the ratio of the real cost to the sticker price, but the published discount rate isn’t meaningful.Instead, the discount rate is different for every student.

So what should a parent understand about this process?First, the largest non-need based scholarships are grouped together as merit aid.You never apply for merit aid specifically.Instead, you are considered for merit aid as part of the admissions process.For the most part, privates give more merit aid as part of so-called enrollment management, though as Catherine noticed, state schools are also starting to compete with merit aid, especially for out of state applicants.Enrollment management is the process of getting a class of students with the desired statistics (grades/scores) that can pay the bills.So a student who is in the bottom 25% of the admitted students will be asked to pay full fare (or full fare minus any federal or other need-based financial aid, but that’s another topic).The admissions and financial aid folks know this person is probably excited to be admitted at all, so will make it work.Another student in the top 10%, on the other hand, has other options and is likely to get a better package with some kind of scholarship.

To some extent, every college wants the same students, but some schools give more merit aid than others.The Ivies and the top liberal arts colleges, which admit ~10% of their applicants, don’t give much merit aid.They don’t have to – even their top 25% applicants are excited to get the admissions letter and they can fill a strong class without discounting tuition.

If you go to the Amazon link and search inside the book for merit aid, you can get the main points.The Amazon site also lets you look at their list of sixty schools that give a significant amount of merit aid.You will notice that the 75% verbal/math SAT score for most of these schools is 1300-1400.So a student with 650+ SATs and solid grades can potentially score some good deals, although not at schools anyone has necessarily heard of!Also, the 25%/75% SAT numbers are public (although as the CMC scandal shows they may not be totally accurate.) You can see an example here, and find many others at collegeapps.about.com

The final thing parents and students should know is that, within a tier of institutions, you can bargain with financial aid.If Oberlin gives you a better package than Macalester, it is worth seeing if Macalester will match or beat it.However, Yale will not be impressed by an offer from Oberlin, but would try to match or beat an offer from Harvard or Princeton.

12 comments:

"...within a tier of institutions, you can bargain with financial aid."

My daughter just applied to 11 different colleges with this in mind, but how does one actually go about it? Is it as blunt as callin the Financial Aid office and saying, "Look, college X has offered my $Y. Can you do better?"?

Yes, the same way you would in a job offer. You call the fin aid office, say how thrilled your child is to attend their school, but otherschool offered $$$ instead, and now you are leaning that way. Is it possible to match that offer ? Youd really like child to be able to come here, but finances are an issue. Is there something they can do?

Where Student selectivity consists of:50% for SAT/ACT scores40% for percent of students in the top 10 percent of their high school class10% for the acceptance rate

I was surprised to see the acceptance rate factor. No wonder top schools want you to believe that you have a chance. For some top schools, the number in the top 10% of your class is a given, so that leaves SAT/ACT.

What this tells me is that your SAT/ACT scores are the primary factors in your value to the school and probably the basis for merit aid. Does anyone wish to share an actual merit aid "merit" function?

It's hard to believe that a little manipulation of SAT scores (50% of 15%)would have that much effect.

I can also see why my alma mater tracks me down like a hunted criminal. I can add to their financial resources and the percent of alumni giving factors.

One thing to consider is that the college has very little control under a lot of those factors, or at least not without major effort. If they're going to game the system the acceptance rate is the easiest - you do everything you can to make applying easy and cheap, knowing that you'll just be rejecting those people anyway. Some colleges are very blunt to alumni that if they give $5 to the college it helps their percentage which is used both by college board and other entities. I remember around graduation my college was very blunt about this - they cared much less about amounts than the percentage and strongly encouraged token contributions.

To game the SAT scores - assuming you don't just want to lie about it - you invest some money in buying students with good scores. This presumably also has a secondary effect on retention and graduation rate.

I am under the impression that it doesn't necessarily take a big change to move up a few ranks within a tier… and then being a couple of ranks up means you attract slightly better students and you can get some momentum going. But if you don't game your rankings after a while people start asking why you're dropping and you look for something quick and concrete you can do to catch up… At a tier 1 this probably doesn't matter, but you can bet if you're in the great sea of tier 2 schools there's a lot of pressure to keep up.

The book I referenced actually has a formula that is (according to the authors) a good approximation. Bear in mind all you can get is pretty good odds, as there isn't a pure and simple formula. This is all about the budget.

Say you are in admissions at a moderately competitive college with 2000 students. They want a first year class of 600 (to account for attrition through the four years), and to get that they know they need to admit 1000 students. They have some kinds of scholarships, say 100% tuition, 50% tuition, and 25% tuition. At my institution, the trustees approve a certain number of each type of scholarship, so lets say they can offer 20 100%, 40 50%, and 60 25% scholarships. They have to decide who gets what, and it is partly scores and grades, but partly whether someone in admissions thinks the scholarship is likely to be effective. No matter how you rank the applicants, it is hard to decide between applicant 120 (who gets a merit award) and 121 (who doesn't). But you can figure out if you are likely to be in the running.

Cranberry, it can. Remember the decisions about these merit scholarships get made by admissions people sitting with files around a table. If "your" admissions person is saying "oh, but he loves our school and I really think this would make a difference" and another person is saying of their student "well, she's never visited campus or been in touch with us, so I'm pretty sure we are just a backup for her," that definitely gives you an edge.

It was our experience that the Ivy my DH ultimately attended for grad school wouldn't match a financial aid package from another elite school. However, we were able to get them to significantly improve their financial aid package by submitting a lot of extra paperwork to show that the original offer was not fair.

The school had originally assumed that my in-laws would contribute to DH's grad school even though he was (1) 27 years old (2) married with a child (3) an Army veteran and (4) financially independent since he graduated high school at 18 including self-financing his undergrad degree. We appealed and got him reclassified as an independent student.

The school had also taken into consideration my income but had not included any of the costs related to my working full-time including daycare and commuting in the budget. They also assumed that we would sell our only car, a vehicle which I needed to get to my job 45 minutes away (there was no public transit that ran to where my office was located). Again we appealed & won.

We ended up with a package not quite as generous as the other school, but still significantly better than the original offer.

That's not completely true. For instance, Washington University has an entire application process for scholarships -- their merit aid. It has different requirements for those scholarships as well.

I realize this is not what you mean, but it is "merit" based - solely.

At University of Pittsburgh, Honors College designation is basically automatic with (3) scores at or over 700, high class rank, etc. and considered for kids who meet most of the qualifications. Merit aid of $2,000-$5,000 year is given out (without applying). However, there are also a set of "Chancellor's" scholarships which provide a full (room and board included, I believe) ride. X number of top of the top applicants are asked to apply for those. The application requires essays and then if those make the cut, an interview.

Also, I'd agree that the Ivies (Harvard Yale Princeton, at the least) are already running their own version of aid -- and do not give out merit aid. You may get some nudges in your package if, as noted above, you can prove that your situation isn't what they think. But, they're not going to fight for you after they've already discounted tuition a little through a lot for pretty much everyone making less than 180K and many above that.

Sure, some schools also have special scholarships you can apply for. I guess I'd tend to call those scholarships rather than merit aid, although it can be a subtle difference.

And yeah, Ivies (or first tier liberal arts colleges) don't give merit aid. Sorry if that was made unclear in my last sentence. Frankly, they don't need to. And there is NEVER a guarantee that anyone will match an offer from another school, but it is worth going back and negotiating anyway. As Allison said, it is like negotiating a job offer. The company you negotiate with may or may not want you enough to say yes, but it is still worth asking. However, if a school admits 10% of its applicants, they are much less likely to say yes. (That said, I know of one or two people who did successfully get an Ivy to match another offer, but there were some really exceptional circumstances. Also usually sports involved.)